Sheng Siong Group - RHB Invest 2020-02-24: More Grants From The Government; Keep BUY


Sheng Siong Group - More Grants From The Government; Keep BUY

  • Sheng Siong (SGX:OV8)'s FY19 results were in line. 4Q19 headline number seemed weak, with PATMI down 0.8% due to a non-cash impact from SFRS16. Excluding this, 4Q19 PATMI grew 9.2% y-o-y to SGD19m, with FY19 PATMI rising 9.7% y-o-y to SGD77.4m.
  • We expect grocery sales to remain resilient amidst the COVID-19 outbreak.

FY19 revenue rose 11.3%.

  • Bulk of the growth was driven by the 15 new stores (opened in FY18-19), while SSSG was flattish. But we note that SSSG turned positive in 4Q19 suggesting improvement in consumer sentiment across 2019.
  • Moving into 2020, we think overall consumer sentiment could be impacted due to the COVID-19 outbreak. But grocery sales should remain resilient as people avoid outdoor gatherings and dining out.
  • The panic buying caused by the Government raising the Disease Outbreak Response System Condition (DORSCON) alert level from Yellow to Orange should give a boost 1Q20 revenue.

Closure to GPM expansion story.

  • We believe we have reached the tail end of Sheng Siong’s GPM expansion story. For FY19, GPM was fairly stable at 26.9%, +0.1ppt.
  • While the group warehouse expansion gave it 20% additional capacity to take on bulk-handling, the efficiencies and higher suppliers’ rebates were offset by higher input prices of pork brought by the African Swine Fever (ASF). We do not expect much increase in GPM from here onwards.

Earnings boost from additional grant by the Government…

  • Sheng Siong expects to receive SGD1.8m additional grant from the Job Support Scheme and Housing Development Board half a month of rental waiver while the wage credit scheme, which amounts to c.SGD1m, was enhanced and extended to 2020.

…but offset by higher effective tax rate.

New stores.

  • Sheng Siong has opened two stores in 1Q20 and put in bids for four new stores. We expect to know the results by the next quarter. For the full-year, we expect the group to open 4-5 new stores.
  • Our earnings forecasts remain largely unchanged as the additional grant is offset by higher taxes. We raise our Target Price to SGD1.42 as declining government bond yields in Singapore lower our risk-free rate assumptions.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-02-24
SGX Stock Analyst Report BUY MAINTAIN BUY 1.42 UP 1.390